Forecasting Factor And Smart Beta Returns (Hint: History Is Worse Than Useless)

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Past is NOT prologue. With the proliferation of smart beta and factor strategies, investors should be vigilant to the pitfalls of data mining and performance chasing. Relative valuations can predict the long-term future returns of strategies and factors —not with any short-term precision— but well enough to add material value. Useful forecasting models should furthermore address implementation costs.

Article by Research Affiliates

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